It’s time for some 2020 foresight in raw materials. After commodities posted a 10% advance last year, how will crude to coffee fare in the months to come? The first What to Watch of the new year presents an overview of what to expect and it’s a mixed, complex picture that emerges. The list covers oil, gold, copper, iron ore, pork and more.
The year’s first full week of trading will be dominated by the Mideast crisis after the American assassination of one of the Iran’s most powerful generals. Crude and gold surged on Monday after President Donald Trump said he was prepared to strike Iran “in a disproportionate manner” if it hits any U.S. target. RBC Capital Markets has warned of “a retaliatory spiral.”
Challenging Times
The complex number-crunching and informed guesswork used to generate year-to-come predictions in the global oil market have been thrown into disarray by the sharp escalation of tensions between Washington and Tehran. Prior to the U.S. killing of Iranian General Qassem Soleimani, investors were focused on whether continued efforts by OPEC and its allies to curb production would be sufficient to counter a global glut supported by rising U.S. shale supply and new output from outside the cartel, including fields in Guyana.
With that in mind, analysts had been forecasting WTI at just below $59 a barrel; but on Monday the benchmark rallied above $70 as the two sides traded ever harsher rhetoric. Further gains will depend on developments this week, including potential risks to crude shipped via the Strait of Hormuz. Tensions between the U.S and Iran disrupted oil markets last year but the episodes were short-lived; the current standoff is of far greater magnitude.
Brighter Prospects
Copper struggled to sustain a rally in 2019 as the trade war spurred destocking of inventories by manufacturers. Now, the outlook is turning brighter with the preliminary truce between Washington and Beijing easing demand concerns for the metal used in everything from automobiles to electronics. Potential output cuts by Chinese smelters also point to tighter supply at a time when stockpiles tracked by the London Metal Exchange are at the lowest in nine months.
Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and Standard Chartered Plc are all bullish on copper as they predict a rebound in global consumption. Citigroup forecasts China’s demand will expand 2.6% this year, underpinned by gains in grid investment. While prices fell on Friday as the Mideast tensions hurt appetite for risk, they remain above $6,000 a ton.
Golden Promise
Gold just delivered a stellar year for bulls as the Federal Reserve cut rates, trade tensions hurt growth, central banks beefed up reserves and ETF holdings swelled. The haven’s upward march may not be quite done: Goldman Sachs, Citigroup and UBS Group AG have all said they’re looking for $1,600 an ounce, and RBC Capital is positive too. And those calls were made before the Iranian crisis sent bullion tearing higher.
On top of the Middle East tensions, additional underlying positivity toward bullion comes as the Fed signals that rates will almost certainly be on hold right throughout this year, at least until central bank officials have seen a “material reassessment” in their outlook. Among other precious metals, palladium also demands attention as a persistent global deficit looks set to fuel gains far beyond $2,000 an ounce.